One recommendation I’ve made to many of the clients I’ve worked with over the last few years relates to account management: “Simplify your financial life.” Multiple checking accounts, multiple savings accounts, and a collection of old retirement plans make for unnecessary complexity. I find “account sprawl” is especially common among married couples who have never taken stock of their combined financial picture. I say make it easy on yourself! Let’s introduce an example framework to consider (which can be adjusted to serve individuals or couples).
A Framework for Simpler Account Management
The account management framework above is based on the principle of one account, one purpose:
- Your current employer’s retirement plan (if available to you)
- One checking account to receive paychecks and pay bills
- One cash management or high-yield savings account to invest additional cash reserves
- One brokerage account to invest for pre-retirement goals
- And optionally, Individual Retirement Accounts (IRAs) for additional pre-tax or after-tax retirement saving
Retirement contributions typically come out of your paycheck first. Your take-home goes to your checking. Then once each level of account reaches its target balance, you move excess funds to the next one. Finally, if you have more to save, you can contribute to IRAs (though be mindful of limitations on contributions and/or tax deductibility).
Now, there are uncommon reasons for spouses to hold separate property and reasons you may want to hold retirement plans from former employers where they are. And some of us maintain separate finances even after getting married, which if that system works for you, so be it!
But usually, there are few practical reasons to hold multiple accounts of the same type and there are plenty of downsides in terms of keeping track of your money. Because, remember, you might also have a Health Savings Account (HSA), a Flexible Spending Account (FSA), 529 college plans, pension accounts, and on and on. Don’t make the problem worse with five or six different bank accounts too!
The Path to a Simpler Financial Life with Hesperian's Help
To specifically address the complexity of your financial life, some of the things we’d do together in the course of a financial planning engagement include:
- Inventorying all your financial assets and linking them to an online dashboard so you can securely view your net worth all in one place—anytime, even from your mobile phone;
- Making recommendations on how to merge accounts and simplify your financial life;
- Helping you right-size your bill-pay liquidity, your total cash reserves, your saving rate, and saving mix (taxable, pre-tax, after-tax);
- Evaluating old retirement accounts and what to do with them; and
- Reminding you to check and review the beneficiaries/PODs on all accounts in preparation for drawing up an estate plan (if you don’t already have one in place).
Those who have gone through my planning process have come out with a clearer picture of their financial life, a simpler financial setup in general, and greater confidence they are on track to meet their goals. The next logical step for them is to rethink how their money is working for them in each bucket of savings (cash reserves, taxable, retirement).
Want to talk through your financial situation? Reach out to schedule a Discovery meeting to discuss it!
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